Nigeria’s exchange rate at the NAFEX window appreciated against the dollar to close at N385.75/$1 during intraday trading on Tuesday, October 20.
Also, the naira depreciated against the dollar, closing at N463/$1 at the parallel market on Tuesday, October 20, 2020, despite another round of forex allocation to BDCs by the CBN.
This is also as businesses shut down due to the outbreak of violence in some parts of the country including Lagos during the protest against the special anti-robbery unit (SARS) and police brutality by the Nigerian youth.
Parallel market: According to information from Abokifx, a prominent FX tracking website, at the black market where forex is traded unofficially, the Naira depreciated against the dollar to close at N463/$1 on Tuesday. This represents a N1 drop when compared to the N462/$1 that it exchanged for on Monday, October 19.
Current developments
- The local currency had strengthened by about 7.8% within the one week in September at the black market, as the CBN introduced some measures targeted at exporters and importers, in order to try to boost the supply of dollars in the foreign exchange market, and reduce the high demand for forex by traders. The measure
- The CBN has sold over $500 million to BDCs since they resumed forex sales on Monday, September 7, 2020. This was expected to inject more liquidity to the retail end of the foreign exchange market and discourage hoarding and speculation.
- However, the exchange rate against the dollar has remained volatile after the initial gains made, following the CBN’s resumption of sales of dollars to the BDCs.
- The President of the Association of Bureau De Change Operators, Aminu Gwadebe, said he expects the impact of the extra liquidity in the market to be gradual.
- Despite the drop in speculative buying of foreign exchange, the huge demand backlog by manufacturers and foreign investors still puts pressure and creates a volatile situation in the foreign exchange market.
NAFEX: The Naira appreciated against the dollar at the Investors and Exporters (I&E) window on Monday, closing at N385.75/$1.
- This represents a 25 kobo gain when compared with the N386/$1 that it exchanged for on Monday, October 19.
- The opening indicative rate was N386.38 to a dollar on Tuesday. This represents a 38 kobo drop when compared to the N386 that was recorded on Monday.
- The N392.79 to a dollar is the highest rate during intraday trading before closing at N386. It also sold for as low as N384/$1 during intraday trading.
Forex turnover: Forex turnover at the Investor and Exporters (I&E) window declined by 72.9% on Tuesday, October 20, 2020.
- According to the data tracked by Nairametrics from FMDQ, forex turnover dropped from $120.93 million on Monday, October 19, 2020, to $32.67 million on Tuesday, October 20, 2020.
- The CBN is still struggling to clear the backlog of foreign exchange demand, especially by foreign investors wishing to repatriate back their funds.
- The drop in forex supply after the huge increase 2 trading days ago reinforces the volatility of the foreign exchange market. The supply of dollars has been on a decline for months due to low oil prices and the absence of foreign capital inflow into the country.
- As part of the measure to check forex abuse and check illegal transactions, the CBN last month directed the freezing of accounts of about 38 companies.
- The average daily forex sale for last week was about $169.93 million, which represents a huge increase from the $34.5 million that was recorded the previous week.
- Total forex trading at the NAFEX window in the month of August was about $857 million, compared to $937 million in July.
- The exchange rate is still being affected by low oil prices, dollar scarcity, a backlog of forex demand and a shaky economy that has been hit by the coronavirus pandemic.
- According to Reuters, currency traders said that the naira is expected to be stable this week as banks limit foreign exchange transactions by both firms and individual buyers on the unofficial black market to curb speculation